The Reserve Bank of India headquarters in Mumbai. Photo: AFP
The Reserve Bank of India headquarters in Mumbai. Photo: AFP

India’s central bank rebutted rumours on social media that some banks are going to be shut. “Reports appearing in some sections of social media about RBI closing down certain commercial banks are false,” the Reserve Bank of India said in a Twitter message on Wednesday.

A day after the central bank placed restrictions on withdrawals in Punjab & Maharashtra Cooperative Bank over its weak financial position, many people received a message on WhatsApp or other social media fora warning that other banks faced closure.

The message stated that nine banks would face closure and had exhorted people to withdraw money from those banks. The message named Corporation Bank, Uco Bank, IDBI Bank, Bank of Maharashtra, Andhra Bank, Indian Overseas Bank, Central Bank, Dena Bank and Union Bank of India, Times of India reports.

Most of the banks named in the messages have either been merged with other banks or are in the process of being merged. Last month, the government announced that 10 public sector banks would be merged into four.

Oriental Bank of Commerce and United Bank of India will be merged with Punjab National Bank, while Syndicate Bank will become part of Canara Bank. Andhra Bank and Corporation Bank will be merged with Union Bank of India, and Allahabad Bank with Indian Bank.

The government has already merged Dena Bank and Vijaya Bank with Bank of Baroda. Also, the IDBI Bank was taken over by the state-owned insurance firm Life Insurance Corporation.

Union Finance Secretary Rajiv Kumar has described such social media messages as “mischievous” and asserted that the government was in process of strengthening public sector banks by infusing capital in them.

The trade unions of public sector banks had decided to go on strike on September 26 and 27 against the proposed mergers, as they feared job losses. They later deferred their plan after Rajiv Kumar invited them for talks.

Bank curb sparks panic

In the case of Punjab & Maharashtra Cooperative Bank, the central bank has capped withdrawals at 1,000 rupees ($14) and these restrictions are expected to remain in force for six months.

This has adversely affected thousands of the bank’s customers, mainly traders, self-employed and daily wage earners with their savings locked up. The fact that this has occurred during the festival season has added to their misery. The bank has 137 branches and is spread over seven states.

Defaults appear to have surged in the past six months amid tight economic conditions and some loans to Mumbai-based real estate companies turned sour, making it difficult for the bank to meet its commitments, Economic Times reports. Its bad loans almost doubled to 3.76% of gross advances by March 2019, from 1.99% a year earlier, the daily added.

Interestingly the bank had approached Reserve Bank and demanded that it freeze the business in order to improve its condition. In a message to depositors, the bank’s managing director, Joy Thomas, took full responsibility for the crisis and offered assurances that the bank’s financials will improve in six months.

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